This method is used when the property is expected to have stable future returns. The first step is to calculate your expected annual gross income by taking into account the value of vacancies and rent collection losses. The second step is to calculate your annual operating expenses and deduct them from your actual gross income to get your net operating income. The third step is to estimate the price at which an investor would pay for the property, and this is known as the capitalization rate. The last step is to apply the capitalization rate to the property's net operating income to obtain an estimate of